Friday, March 11, 2011

The PAYE worker and the Income Tax

In a previous post we considered the distribution of income and income tax across all earners in the State using Table IDS1 from the Revenue Commissioner’s 2009 Statistical Report.  Here we use Table IDS6 for mainly PAYE incomes assessed under Schedule E (excluding proprietary directors on the Schedule E record) to carry out the same analysis.  In a subsequent post we will look at the self employed and proprietary directors.

Here is the number of PAYE tax cases.

PAYE Income Tax Cases 2008

There were just over 2 million PAYE income tax returns filed with the Revenue Commissioners in 2008. There 333,538 joint returns filed were both partners earned income so this table covers about 2.4 million people.

The distribution of incomes is largely similar to those reported in the total table (which is not surprising as these earners form such a large part of the total) but it is interesting to note that the right tail in this table is relatively flatter.  In the total table 5.4% of tax cases had an income of €100,000 or above.  In the PAYE sub-sample 4.0% of workers have such incomes.  The proportion in the top income range drops from 0.6% to 0.2%.

Here is the income earned in each of these income ranges.

PAYE Income Earned by Range 2008

There was around €71.5 billion of PAYE income in 2008 which is 78.7% of the total income reported.  The average individual income for all PAYE tax cases filed was €34,676.  The median income is somewhere around €26,000.  The average income in the top range was €480,000, which is lower than the €560,000 seen when looking at all tax cases.  These top cases earned 2.9% of the total income here compared to 8.1% in the total cases.

Next we turn to the tax paid across the income ranges.

PAYE Income Tax Paid by Income Range 2008

Just under €9 billion of income tax was paid on the €71.5 billion of earned income.  The 51% of cases earning less than €27,000, with 19.7% of the income, paid 2.2% of the tax.  The 4% of cases reporting incomes of more than €100,000, with 17.6% of the income, paid 37.3% of the tax.

Finally we’ll look at the effective tax rates and average amount of tax paid.

PAYE Effective Tax Rate and Average Tax Paid 2008

For PAYE earners the tax system is progressive, with the effective tax rate rising through each income range from 0.1% to 34.1%.  The effective tax rate on those in the top income range here is higher than the 28.0% seen for all cases.   The income tax burden on those earning less than €20,000 was essentially zero and was just over €100 a month for those earning €30,000. 

It would take 1,178 people in the top income range to pay the same amount of tax 1,052,426 as those earning less than €27,000 but it would take 29,341 of the top earners (if they existed) to earn the same total income as this group.

Here is a graph that helps to illustrates these points.  This gives the proportion of cases, income earned and tax paid across seven income ranges.  Watch the navy and maroon disappear in the “Income Tax Paid” bar while the lilac becomes ever more evident.

PAYE Income Tax Distribution 2008

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